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High Income Tax Bracket? Use These 3 Tax Saving Investments

Those with high income often end up paying more in taxes. If you make more than $205,750 in 2015, you are in the 35% tax bracket. If your taxable income goes over $232,425, you pay 39.6% in taxes. Add investment taxes within the Affordable Care Act and the taxes can hike up to 50%!

tax savings tips

Even if you are in the top tax bracket, you can save a substantial amount by investing smartly. By using a few investment vehicles, you can reduce your 2015 tax bill. Below are the top 3 ways to save taxes through investments, which give you the double benefit of saving taxes and securing your future. Forbes shares:

“Consider Life Insurance

“Although typically thought of as a way to protect a family from an unexpected event, life insurance can also offer certain tax advantages. As a young, high earner, you may be in a position to overfund a policy – input more money than needed for the pure death benefit. Please keep in mind that overfunding too much can turn the life insurance policy into a MEC creating adverse tax consequences or tax penalties. Some permanent policies allow you to invest the portion over your premium and then withdraw it with favorable income tax implications. Keep in mind the primary reason to purchase a life insurance product is the death benefit. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods.

“If you are not able to overfund and accumulate, then you may want to consider a convertible term life insurance policy. It will allow you to gain an important death benefit while also allowing you to convert this term policy (which typically increases in price after a set term) into a permanent policy. By having a high-quality convertible term policy, you can help protect your family and your financial plan even if there has been a change in your health.

“Timing is crucial for families considering life insurance. If there is an income disparity between spouses, newlyweds may want to consider life insurance at the onset of their marriage. Moreover, expectant parents may want to consider applying for life insurance before their baby arrives. A policy can provide numerous benefits to survivors that help to provide overall peace of mind, often in the form of maintaining accumulated wealth, and supporting retirement plans.

“Build Liquidity!

“A regular monthly savings plan can help you build those liquid assets that you crave. The assets can be used for a home down payment, a spontaneous luxury purchase, or to cover living expenses that result from unexpected events such as a change in career. There are several ways to build liquidity in a tax efficient manner. I like thinking in terms of short-term and long-term needs.

“Since you may need a portion of these funds in the short term, you should consider all of your alternatives in addition to a typical bank account. Some alternatives may be subject to ordinary income taxes. This is why for short term needs we recommend something that is relatively safe and can provide important tax advantages. And, for the longer-term needs, a tax efficient portfolio with more potential growth might be a good start.

“Max out Your 401(k) Contributions

“Always strive to contribute the maximum amount allowed to your 401K plan. Accumulating wealth is a lifelong endeavor, and although you may be having problems saving today that does not mean you can’t set aside some money for tomorrow.

“In many cases in working with Gen-Xers I’ve found that the Roth provision inside a 401(k) or using a Roth IRA can potentially be more beneficial in the long term. However, if you choose the Roth, then you lose the ability to have those contributions reduce your taxes now. This is why I sometimes suggest a tandem approach of selecting the traditional 401(k) for the current year tax deduction and then funding another product or strategy such as life insurance that may allow one to benefit from potential tax-free withdrawals later.

“I always remind the young, high earners I meet that they will break the Gen X poverty triangle with creative planning, a commitment to saving, and time. When you reach the point where you have high-income, high savings, and high taxes, these early days will be a distant memory that you can gladly retell to Millennials.”